NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed Instituto Costarricense de Electricidad y
Subsidiarias' (Grupo ICE) foreign and local-currency Issuer Default
Ratings (IDRs) at 'BB+' as well as its national scale ratings at
'AAA(cri)' and 'AAA(slv)'. The Rating Outlook is Stable. Concurrently,
Fitch affirmed Compania Nacional de Fuerza y Luz's (CNFL) ratings at
'AAA(cri)'. A full list of ratings is provided at the end of this
release.

KEY RATING DRIVERS

Grupo ICE's ratings are supported by the company's linkage to the
Sovereign rating of Costa Rica (FC and LC IDRs rated 'BB+'/Stable
Outlook by Fitch) which stems from government ownership. The link
between Grupo ICE and the government also reflects the company's
political risk resulting from its tariff approval process and
government-mandated strategy to assure the country's electric supply,
which temper the ratings to that of the sovereign. The ratings also
reflect the government's implicit and explicit support, the company's
diversified portfolio of assets, and its adequate financial profile.
Also factored into Grupo ICE's ratings is its aggressive capital
expenditure program oriented toward increasing renewable generation
capacity and maintaining a strong market share position in the
telecommunications business.

DIVERSIFIED ASSET PORTFOLIO:

Grupo ICE has a diversified portfolio of assets and a strong business
position in electricity and telecommunications markets in Costa Rica.
The ratings reflect the company's low business risk resulting from its
business diversification and positive characteristics as a utility
service provider.

Grupo ICE has a legal monopoly in the electricity sector in Costa Rica.
The issuer is the largest power generator and electric distribution
company in the country. As of year-end 2013, Grupo ICE had an installed
electric generation capacity of 2,067 megawatts (MW) (national capacity
of 2,731MW) and was the exclusive owner of the national transmission
grid. The national electric industry includes private generation,
municipal distribution and electric cooperatives that can generate
energy in coordination with Grupo ICE or sell their energy to Grupo ICE.
The company is expected to remain a leader in the telecommunications
industry in the country, notwithstanding recent changes that opened the
industry to competition. Although this has resulted in increased
competition, it is also expected to enhance regulatory transparency.
ICE's market share in terms of subscribers is approximately 100% in
fixed telephony and 70% in mobile.

During the last 12 months (LTM) ended September 2013, the company
generated revenues and EBITDA of CRC1,314,436 million and CRC388,299
million, respectively (CRC1,184,950 million and CRC326,506 million in
year 2012). The company's electricity segment represented approximately
61% of revenues, with the telecommunications division contributing the
rest. Fitch expects ICE's electricity business to increase its
contribution given current and future expansion projects, as well as its
relatively stable results in the telecommunications segment.

MODERATED LEVERAGE DRIVEN BY CAPEX:

Grupo ICE's ratings reflect the company's moderate leverage and adequate
interest coverage, yet with some exposure to foreign exchange risk. In
the last few years, the company's leverage weakened as a result of the
ongoing large capital expenditures program, which has been financed
mainly with debt. Fitch expects the company will be able to reduce
leverage as new generation projects, such as PH Reventazon, come online
in the next few years, absent significant changes in the tariff scheme.

As of September 2013, Grupo ICE reported consolidated debt of USD3.5
billion, of which USD352 million was short-term and nearly 79% was
denominated in USD. The company benefits from a very favorable debt
maturity schedule - only 32% of total financial debt matures in the next
five years. For the LTM ended September 2013, financial leverage, as
measured by total adjusted debt-to-EBITDAR, totaled 5.1x (vs. 5.8x in
December 2012).

AGGRESSIVE CAPITAL EXPENDITURE PLAN:

Grupo ICE's capital investment plan is considered aggressive and could
weaken the company's financial profile, without increased cash flow
generation and adequate tariff adjustments. The company plans to invest
approximately USD3.7 billion over the next five years to increase
renewable generation capacity and maintain its leadership position in
telecommunications in Costa Rica.

Going forward, Grupo ICE's credit metrics could deteriorate
significantly. Leverage could increase consistently to over 6.0x if the
company finances its capital investment plan heavily with debt and the
revenues associated with these investments are delayed beyond the
expected ramp-up timeframe or do not receive tariff adjustments. Grupo
ICE expects to finance its investments with a combination of internal
cash flow, debt, Build Operate and Transfer (BOT) transactions, project
finance vehicles and operating leases.

HIGH EXPOSURE TO REGULATORY AND POLITICAL INTERFERENCE:

Grupo ICE is highly exposed to regulatory interference risk given the
lack of clear and transparent electricity tariff schedules. Each year,
the company proposes electricity tariffs for end-users to the regulator;
in previous years, regulatory and political interference affected the
tariff adjustment process.

Since 2013, tariffs reflect fossil fuel cost variations on a quarterly
basis. This change had a positive impact on Grupo ICE's cash generation
and reduced its exposure to hydrology risk. Previously, tariffs did not
fully recognize the company's moderate exposure to fuel prices which is
borne by its thermoelectric generation business (8%-10% of annual
generation on average).

The recent Telecom regulatory framework considers changes in tariffs and
competition rules. Fitch expects that new regulations could enhance
regulatory transparency. Nevertheless, telecommunications tariffs have
been unchanged since 2006.

Despite the regulatory risk, Grupo ICE has managed to maintain relative
stable cash flow generation. Also, the company is exposed to political
interference given that the government appoints and removes ICE's
directors and executives, sets and approves the company's tariffs, and
regulates its budget.

RATINGS SENSITIVITY

--Grupo ICE's ratings could be negatively affected by any combination of
the following factors: sovereign downgrades; weakening of legal,
operational and/or strategic ties with the government; or regulatory
intervention that negatively affects the company's financial performance.

--Grupo ICE's ratings could be positively affected by an upgrade of
Costa Rica's sovereign rating, or if the company is materially isolated
from government interference.

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